Monday, August 31, 2015

Markets decline on China woes and rate hike concerns

Dow sank 145, decliners over advancers 3-1 & NAZ dropped 39.  The MLP index fell 4+ to the 354s & the REIT index lost 2+ to the 302s.  Junk bond funds drifted lower & Treasuries rose.  Oil ran into selling after last week's advance & gold was also lower.

AMJ (Alerian MLP Index tracking fund)

CLV15.NYM....Crude Oil Oct 15...44.38 Down ...0.84  (1.9%)

GCU15.CMX...Gold Sep 15......1,124.80 Down ...8.30  (0.7%)

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China’s stocks fell, capping the benchmark index’s biggest 2-month tumble since 2008, amid concern that gov intervention to prop up the market will fail.

The Shanghai Composite Index dropped 0.8% to 3205.  The gauge lost 12% this month after sliding 14% in Jul.  The SSE 50 Index of the nation’s biggest stocks rebounded 6.7% from its intraday low.  Bearish bets in the options market climbed as traders weighed the level of state support before a WW II victory parade this week.  The Shanghai Composite closed near its highest level of the day for the 3rd straight session amid speculation state-backed funds are using afternoon share purchases to bolster the market before the parade, which the gov will use to demonstrate its rising military & political might.  Swings in Chinese markets this month have rattled investors worldwide as they struggle to anticipate policy actions in the economy.  The gov revived its intervention in equities on Thurs to halt the biggest selloff since 1996.  The effort to support markets was part of a broader push to ensure nothing detracts from the parade.  China’s financial markets will be shut Thurs & Fri to commemorate the event.

China’s securities regulator asked brokerages to step up their support for share prices by contributing 100B yuan ($15.7B) to the nation’s market rescue fund & increasing stock buybacks, according to leakers.  Investor sentiment is getting increasingly pessimistic.  Puts that pay out on a 10% drop in the China 50 exchange-traded fund cost 9.3 points more on Mon than calls betting on a 10% gain.  As recently as last Mon, the bullish contracts were more expensive.

China Stocks Extend Biggest Selloff Since 2008

Federal Reserve Vice-Chair Stanley Fischer, in a speech at Jackson Hole, provided a detailed description of the conditions the Fed is seeking before pulling the trigger on an interest rate hike; he suggested the Fed is confident the US economy is headed in that direction; but he gave no clue as to when it might happen.  Fischer addressed the recent turmoil in global markets, noting that it would have an impact on US monetary policy.  "In making our monetary policy decisions, we are interested more in where the U.S. economy is heading than in knowing whence it has come.  That is why we need to consider the overall state of the U.S. economy as well as the influence of foreign economies on the U.S. economy as we reach our judgment on whether and how to change monetary policy,"  Fischer said.  "That is why we follow economic developments in the rest of the world as well as the United States in reaching our interest rate decisions.  At this moment, we are following developments in the Chinese economy and their actual and potential effects on other economies even more closely than usual," he added.  Fischer also reiterated the Fed's long-held position that rates could start moving higher before inflation reaches the Fed's goal of 2% annual rate.  However, again repeating a long-held & often-stated position, he said the Fed would take a "cautious" approach toward raising rates.  "There is good reason to believe that inflation will move higher as forces holding down inflation dissipate further," Fischer said, citing the fading impact of a highly-valued dollar, volatile energy prices & a tightening jobs market.  Bcause of Fed optimism with regard to the trajectory of inflation "we should not wait until inflation is back to 2% to begin tightening."  But "we will most likely need to proceed cautiously in normalizing the stance of monetary policy."

Fischer: Fed Shouldn't Wait for 2% Inflation

Wal-Mart, a Dow stock & Dividend Aristocrat, in the midst of spending $1B to raise employees’ wages & give them extra training, has been cutting the number of hours some of them work in a bid to keep costs in check.  Regional executives told store managers at the annual holiday planning meeting this month to rein in expenses by cutting worker hours they’ve added beyond those allocated to them based on sales projections.  The request has resulted in some stores trimming hours from their schedules, asking employees to leave shifts early or telling them to take longer lunches, according to more than 3 dozen employees.  The reductions started in the past several weeks, even as many stores enter the busy back-to-school shopping period.  CEO Doug McMillon is trying to balance a desire to improve service, partly through increased spending on his workforce, against investors’ pressure to keep profit growing.  Labor costs, which rose after it increased the minimum wage to $9 an hour in Apr, have weighed on earnings, which missed expectations last qtr. At the same time, WMT is trying to maintain low prices to fend off rivals.  The stock fell 33¢.  If you would like to learn more about WMT, click on this link:

Wal-Mart Cuts Some Workers’ Hours After Pay Raise Boosts Costs

Wal-Mart (WMT)

Stocks are being sold on increased worries about the Chinese economy & stock market.  Uncertainty about the interest rate hike is adding to nervousness in the market.  This is traditionally a holiday week, but may not be much of a holiday for many investors.  Dow is down more than 1K in Aug, a month to remember.

Dow Jones Industrials

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